I recently finished reading Deep Survival by Laurence Gonzales. It’s an excellent book that does a great job of evaluating how people make decisions and ultimately fail or succeed in remarkably challenging situations. These chaotic events are pretty insane. For example, Gonzales recounts the decisions made by a climber while basically falling off the side of a mountain.
In the book, Gonzales does a superb job relating how our brain acts in these stressful and strenuous situations, and where our reasoning goes wrong. Most “survivors” in these stories seem to share similar characteristics that help them overcome the struggles they were facing. I figured I would outline some themes I picked up from the book and how I see this related to everyday investing.
If we think big picture for a second, how survival relates to investing is quite simple. When we face difficult times, we tend to become blind to seemingly obvious actions and make decisions that seem irrational in hindsight. Everyone knows not to drink salt water but if you are stuck at sea for a week, you probably will forget.
We begin to focus way too intently on the trees and ignore the fact we need to remember it is a part of the entire forest. As with drinking salt water, we forget about the big picture of needing to make smart survival decisions. Just as we might abandon our investment process after a few bad days.
As investors, we need to make sure our decisions are matching our future goals. We cannot let one specific day of volatility (tree) take our eye off retirement, college savings, a new home or whatever our goal (forest) is. We have to maintain our ability to step back and double check our work. Our goal should be to make sure that we can see the forest for the trees, and not lose our perspective in any particular situation.
Traditional economics assumed perfectly rational agents. So does traditional survival training. Neither assumptions reflect the messy real world.
I love this quote by Gonzales as it really emphasizes this point:
You will never have a simple, easy investing career. Shit happens sometimes we need to take a breather and recollect our thoughts. Don’t quit or give up when things happen but instead evaluate your surroundings and make the next move.
Investors tend to anchor their thoughts around economic forecasts, market predictions, and other historical stock market events. These are good starting points but we have to remember they are measures of what has happened in the past. To quote Mark Twain, “History doesn’t repeat itself but it often rhymes.”
It is inevitable that we are going to see something happen in the markets, like volatility, but maybe to a greater magnitude. This doesn’t mean to scrap our entire process or change what you are doing but instead to revisit our own process. We cannot let ourselves excess over one data point and become blind to other indicators available to us.
Just as with survival, nothing ever tends to play out as it does in training class. Very often these survivors get caught improvising and making adjustments based upon the experiences laid in front of them. As technology advances, information is more easily accessed, more investors enter the market, new challenging situations will be inevitable. It’s up to us as investors to evaluate what’s going on, make smart decisions AND SURVIVE.
Seeing the trees (February 5th, 2018):
Seeing the forest (1980-2018):